What is a Bear Market? Mind Your Money Series – Part 1

February 17, 2016 By: Paula

If you’ve done any type of investing or watched any sort of financial news, you’ve probably heard the term, bear market. Depending on your investment or financial knowledge you may or may not know what a bear market is. In my 40s I have made it my mission to be smart and savvy about investing, spending and donating money. I am a cautious investor and honestly quite new to the stock market so when I read stock market news I take it to heart and all of the talk recently about bull and bear markets got me wondering what does that mean to the average person? Today, I want to cut through some of the confusion. Today we’re going to talk about bear markets, what they are, and what they mean. Tomorrow I will bring you part 2 in the Mind Your Money series on bull markets.

What is a Bear Market

This is a market that is generally on a downward trend. You can remember this by thinking of how bears attack. They swipe downward. So a bear market is a downward trending market. This downward turn generally occurs after the market has been strong for a long period of time. Professional investors call this a correction. In other cases, a downward trending market can occur when there is heavy doubt in the system. Most recently this occurred when the price of oil hit all-time lows.

What Does it Mean

A bear market means that investments are losing value. The price of everything is going down. This downward trend continues because people who are invested in the market will often sell as prices start to fall to mitigate their losses. As the market falls, more people sell, and as more people sell, the market continues to fall. Unless you are quite knowledgeable in the investment game, or have someone extremely trustworthy and qualified to help guide you, this is the time to stay out of the market.

FRANKFURT – OCTOBER 14: Bear and Bull sculpture near the Frankfurt Stock Exchange.

What Should You Do

Stay out of a bear market if you are not an investment professional. There is money to be made in a market of this type, but only if you know how. It involves things like options, hedge funds, and other things that most of us don’t have a lot of experience with. If you are an amateur investor and the market takes a bearish turn, stay out of it to limit losses and risk.

Knowing What a Bear Market is Can Save You Money

A bear market is nothing to play with. It’s a market fraught with danger for those who don’t know how to effectively navigate the investment waters. So remember, a bear market is a market which is going down. Unless you’re extremely experienced in the trading game, stay away!

Comments

Great advice, Paula! I stay far away from this sort of thing but, I think no matter what type of investor you are, you should have a general understanding of terms like bear and bull market. Love the bear/bull photo!

It’s so important for the average non-investment professional to have at least a basic knowledge of finances. I’m looking forward to reading the rest of your series! Personally, I’m in it for the long haul, so I buy long-term investments and leave them. If you already own stocks/investments, selling while they’re low is generally a bad idea. In the long run, prices will usually come back up, so waiting it out if you can is a better strategy.

Never heard of the terms “bear” and “bull” markets, but those are pretty cool terms for it. I haven’t invested much, except for RRSPs and will just have to hope it survives and becomes something useful by the time I’m ready to retire. 😉 Thanks for the heads up hun! <3

My husband takes care of our investments, so honestly, I have very little in the way of financial knowledge. Having said that, I have been trying to get a basic understanding of the stock market and I love your explanation of a “bear” market, I will definitely now remember what it means.

My husband is not a financial guru at all. He’s content to let me handle all the investing so I need to be informed. It’s not my favourite thing ever BUT I think to myself well if you take the time to make sure your money works for you then you have to work less in the long run so it’s a worthwhile investment of time for me anyways.